"The substitute budget now adds in tax breaks and tax deductions for those who buy these prisons."
Matt Lundy on Monday, May 2nd, 2011 in a news conference
State Rep. Matt Lundy says House GOP added extra tax breaks to sweeten sales pitch on prisons
Gov. John Kasich’s wish to sell off six state prisons has become yet another partisan political hot potato in Columbus. Then again, what isn’t during budget season.
But state Rep. Matt Lundy, an Elyria Democrat, kicked it up a notch with comments during a May 2 news conference called for the purpose of throwing cold water on the Republican governor’s plan to sell off five adult prison facilities and one youth detention center.
Kasich has said the transaction could net Ohio a profit of $200 million.
Lundy disagrees. He argues that there still will be bonds and improvement debts to be serviced and that will cut into the profit.
He likened the proposal to an "insane yard sale" and questioned the logic of selling state assets during a down economic period when they may fetch low bids.
He also accused Republicans in control of the House of helping Kasich to lure buyers.
"The substitute budget now adds in tax breaks and tax deductions for those who buy these prisons," Lundy said. The House passed its version of the budget on May 5.
Politifact Ohio decided to take a closer look.
The House did propose a sales tax exemption, income tax deduction and commercial tax exclusion for any buyer that strikes a deal with Ohio to take over the prisons offered for sale. Lundy said such friendly trinkets will eat away at the state’s expect profits on the deal.
So, why was it included? Kasich’s proposal didn’t offer the tax breaks but the House Republicans did.
House Finance Chairman Ron Amstutz, a Wooster Republican, said the tax provisions were added to assure that the private buyer of the prisons would be treated like any other state entity since they will essentially be performing a state function by housing inmates.
"Typically state entities don’t pay taxes on their functions and that is true of local governments, as well," Amstutz said. "And I think the desire is to maintain that status in order to provide for services at the lowest cost that we can."
If the private entities were to pay these particular taxes, which go back to supporting the local communities where the facilities are located, then "basically the state taxpayers would be subsidizing the local taxpayers at that point for a state function and typically we don’t do that," Amstutz explained.
State prisons spokesman Carlo LoParo noted, however, that any buyer of the state prisons would be expected to pay property taxes each year, which would net a huge amount of cash for the local governments where there facilities are located.
"That’s pretty substantial," LoParo said. He added that the Ohio Department of Rehabilitation and Corrections had closely monitored the House negotiations to make sure that a carve out for property taxes was not stuck in.
"We took pains to make sure there were no loopholes," he said. "We fully expect them to pay property taxes to those communities where the prisons are located."
The impact for local governments could be substantial.
For example, there are two facilities offered for sale that are in Marion -- the North Central Correctional Institution that houses adults and the Marion Juvenile Correctional Facility, which is currently closed.
Combined, the two properties are valued at $100 million, which would result in about $1.5 million annually in property tax collections for that small city. LoParo said that should be enough money help Marion’s police force pick up criminal investigations at the two facilities, which would fall to the city and not state highway patrol, as is currently the case.
So where does Lundy land on the Truth-O-Meter.
Lundy is correct that the the substitute budget includes tax breaks and tax deductions for those who buy the prisons. There would be no sales tax on the purchase and there are other exclusions for income and commercial taxes.
The administration is demanding that local property taxes absolutely be paid, which could yield significant revenue to local governments and schools.
And Lundy is correct that the tax breaks and deductions in the budget bill were added in by the House.
On the Truth-O-Meter, we rate Lundy’s comment as True.
Published: Thursday, May 12th, 2011 at 6:00 a.m.
Subjects: State Budget
Telephone interview with Carlo LoParo, state prisons spokesman, May 5, 2011
Telephone interview with state Rep. Ron Amstutz, House finance chairman, May 9, 2011
Ohio Capital Blog, "May 2 Lundy on Ohio Prison ‘Yard Sale,’" posted to YouTube May 3, 2011
The Plain Dealer, "Divided Ohio House passes budget full of cuts on heels of rosy revenue news," May 6, 2011
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